(CBS News) The recent losses at JPMorgan Chase have have strengthened the case of Democrats pushing for tougher regulation of the banking sector aimed at preventing a repeat of the 2008 financial and economic meltdown, the author of the 2010 rewrite of Wall Street rules said Wednesday.
"I think we now have a stronger argument for a Volcker rule that says no to a bank, your main job is lending and managing the money of your clients. You should not put your own money at risk," Rep. Barney Frank said in an interview with "CBS This Morning."
Named after former Fed Chairman Paul Volcker, the Volcker rule essentially would have banned the banks from using their own money to invest in the financial markets.
JPMorgan chief executive Jamie Dimon has been one of the most vocal opponents of the rule and his firm has spent millions of dollars on lobbyists and lawyers trying to get the rule watered down as it is finalized.
The rule was passed as part of the 2010 legislation overhauling the rules of Wall Street, but the details were not set in the legislation and instead left to regulators who had two years to finalize details of precisely what would and would not be prohibited.
The JPMorgan set of trades, in which the firm lost more than $2 billion, may have inadvertently showed how the banks planned to get around the forthcoming regulations, which were to be finalized by July. The rule included an exception for so-called "hedging," which is typically used to prevent losses from getting too large. But the banks were using the "hedge" to gamble, essentially making the rule moot.
Frank noted that Democrats do not want to prevent Wall Street firms from taking risk but they want to make sure that taxpayers are not the ones left holding the bag.
"I do want to make one thing clear: we are not trying to stop financial institutions from losing money, that's their business. That's inherent," Frank said.
"We are trying to prevent losses from a particular financial institution from spilling over into the rest of the economy and causing a problem. We have a particular concern about banks which get federal deposit insurance. We want to keep them in a safer and stabler place," he added.